{"id":17230,"date":"2021-09-15T06:45:00","date_gmt":"2021-09-15T10:45:00","guid":{"rendered":"https:\/\/www.faircanada.ca\/?post_type=press-release&#038;p=17230"},"modified":"2022-02-15T06:46:39","modified_gmt":"2022-02-15T11:46:39","slug":"fair-canada-is-challenging-big-banks-interpretation-of-client-focused-reforms-and-raising-concerns-about-limits-on-investor-choice-read-our-open-letter-to-the-investment-industry-and-govern","status":"publish","type":"press-release","link":"https:\/\/faircanada.ca\/fr\/press-release\/fair-canada-is-challenging-big-banks-interpretation-of-client-focused-reforms-and-raising-concerns-about-limits-on-investor-choice-read-our-open-letter-to-the-investment-industry-and-govern\/","title":{"rendered":"FAIR Canada is challenging big banks\u2019 interpretation of client focused reforms, and raising concerns about limits on investor choice. Read our open letter to the investment industry and government policy makers:"},"content":{"rendered":"\n<p><strong>September 15, 2021 &#8211; Toronto&nbsp;<\/strong><\/p>\n\n\n\n<p>2021 was supposed to be a big year for investors, with several important changes coming on board to better protect them. Known as the client focused reforms (CFRs), the changes were intended to ensure that banks and investment firms put their clients\u2019 interests ahead of their own interests. Apparently, this point was lost on three of Canada\u2019s biggest financial institutions.<\/p>\n\n\n\n<p>RBC, TD Bank and CIBC have decided to stop selling \u201cthird-party\u201d mutual funds to segments of their clients in their bank branches. This was in response to the \u201cknow-your-product\u201d (KYP) rules, a component of the client focused reforms.<\/p>\n\n\n\n<p>How can the three banks justify this move? They say it\u2019s because under the new rules starting in 2022, employees in local bank branches who hold themselves out as financial advisors will have to know and understand the mutual funds they sell to clients.&nbsp;<\/p>\n\n\n\n<p>Apparently, it is too much work to train their advisors to understand mutual funds offered by other banks or manufacturers before selling them. So, to make it easier to comply with the know-your-product rules, they will simply limit choices available to their clients.&nbsp;&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<p>This decision flies in the face of the spirit of client focused reforms. By limiting customer choices in an attempt to reduce their know-your-product compliance obligations, they are putting their own interests ahead of their clients\u2019 interests.<\/p>\n\n\n\n<p>This is ironic, given the public commitments made by these banks to put their clients\u2019 interests first. Their statements below now ring hollow:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201cOur purpose of helping make our clients\u2019 ambitions a reality is our north star\u201d (CIBC).<\/li><li>\u201cClient First: We will always earn the right to be our clients\u2019 first choice\u201d (RBC).<\/li><li>TD Bank\u2019s \u201cshared commitment\u201d to \u201cthink like a customer\u201d.<\/li><\/ul>\n\n\n\n<p>Their rationale for cutting sales of mutual funds from other suppliers doesn\u2019t seem credible. Bank staff selling mutual funds are already expected to know the products they sell under the \u201csuitability\u201d rules. The new know-your-product rules simply spell out these expectations in more detail.<\/p>\n\n\n\n<p>Some commentators have suggested that banks are pulling back third-party mutual funds to further entrench their already dominant market share for mutual funds and increase their fee revenues. Others say it\u2019s no big deal since only a small number of clients will be affected. But it does matter because it hurts individual investors, who will have fewer choices available to them. It may also lead to higher or additional costs for clients who may choose to switch banks down the road.<\/p>\n\n\n\n<p>It\u2019s not clear yet how many customers may be affected by this decision. But it could be a sign of things to come. If this move by the three big banks goes unchallenged, they may decide to limit the third-party investment choices of even more segments of their customers. Meanwhile, the decision to abandon putting the client first may set an example for other institutions to follow.&nbsp;<\/p>\n\n\n\n<p>Their decision also raises serious questions about our regulatory system. For example:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Should the requirement to put the client\u2019s interest first be enshrined into law as an overarching obligation or \u201cBest Interest Standard\u201d, so it truly becomes a cornerstone of our regulatory framework?<\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li>Were we wrong to assume that the client focused reforms would be an acceptable alternative to a Best Interest Standard, and would be enough to put the investor\u2019s interest at the centre of the relationship between investors and financial institutions?<\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li>Should people who hold themselves out as financial \u201cadvisors\u201d be allowed to use that title when they sell only mutual funds, and only mutual funds from the financial institution that employs them?<\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li>Are the proficiency requirements too low for those selling mutual funds, given the banks\u2019 justification for limiting third-party fund sales implies that advisors in their branches are not able to understand mutual funds manufactured by others?<\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li>Does the big banks\u2019 dominant position limit investor choice in Canada? And if so, do governments and regulators need to intervene to promote more competition?<\/li><\/ul>\n\n\n\n<p>Without a change of heart by the banks or more intervention by regulators, this development erodes choice and is damaging to Canadian investors. Yet again, retail investors seem to be nothing more than collateral damage in the ongoing fight between industry\u2019s desire to keep regulatory costs as low as possible, and regulators\u2019 efforts to craft the rules needed to protect investors.&nbsp;&nbsp;<\/p>\n\n\n\n<p>For Further Information Contact:<\/p>\n\n\n\n<p>Jean-Paul Bureaud<br>Executive Director, FAIR Canada<br><a href=\"mailto:jp.bureaud@faircanada.ca\" target=\"_blank\" rel=\"noreferrer noopener\">jp.bureaud@faircanada.ca<\/a><\/p>\n","protected":false},"featured_media":0,"template":"","tags":[],"class_list":["post-17230","press-release","type-press-release","status-publish","hentry"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.2 (Yoast SEO v26.9) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>FAIR Canada is challenging big banks\u2019 interpretation of client focused reforms, and raising concerns about limits on investor choice. 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